Tween Brands Posts 3Q 2009 Results

In a release on November 16, the Company noted that net income for the third quarter of 2009, excluding a $2.8 million pretax merger charge and a $3.9 million pretax non-cash store impairment charge, was $ 14.7 million, or $0.58 per diluted share. Net income for the third quarter of 2008, excluding an $11.5 million pretax restructuring charge, was $6.4 million, or $0.26 per diluted share.

"Our customers continue to embrace the value proposition of Justice, which was the fundamental reason for the brand transition we began just a short year ago. Justice has everything our girl needs at a competitive price, with the fun shopping experience and the industry-leading fashion assortment she wants. Our marketing strategy reinforces the message that our prices are as value-oriented as our competitors and it continues to be successful. The result has been significant improvement in our sales trends during the last three quarters, with comparable store sales declining 23 percent in the first quarter, 12 percent in the second quarter and only 2 percent in the third quarter. Momentum accelerated throughout the third quarter, with comparable store sales increasing 11 percent for the month of October," said Michael Rayden, Tween Brands chairman and chief executive officer.

"We continue to increase our share of the 7-14 Tween Girl apparel market and this has helped us significantly improve comparable store sales in the current economy. This momentum, along with the proposed merger with Dress Barn, which our stockholders are scheduled to vote on next week, has us very energized as we look forward to the future," said Rayden.

Quarter Performance Analysis

Net sales for the third quarter of fiscal 2009 increased 2.0 percent to $259.3 million compared to $254.3 million in the third quarter of fiscal 2008, driven predominantly by a 35 percent increase in on-line, direct-to-customer sales, partially offset by the 2 percent decline in comparable store sales. The comparable store sales decline is primarily attributable to the 2008 strong performance associated with Webkinz. Webkinz had a negative 4 percent impact on comparable store sales during the third quarter of 2009.

Gross income for the third quarter of fiscal 2009 totaled $92.9 million, or 35.9 percent of net sales. This compares to third quarter 2008 gross income of $85.6 million, or 33.7 percent of net sales. The year-over-year increase as a percentage of net sales was primarily due to successfully leveraging the $3.3 million reduction in buying and occupancy expense. This reduction in buying and occupancy expense includes the impact of the $3.9 million pretax store impairment charge recognized during the quarter.

The Company recognized a $3.9 million pretax impairment charge in the third quarter, reflecting an adjustment of store assets. The non-cash store asset impairment charge related to 28 stores partially offset the significant decline in buying and occupancy expenses during the period.

Store operating, general and administrative expenses, inclusive of merger-related expenses of $2.8 million, improved to $71.4 million from $72.3 million in 2008. The majority of the improvement was associated with reductions in store payroll and other stores expense. During the third quarter of fiscal 2009, SG&A improved by 90 basis points to 27.5 percent of net sales.

Net interest expense was $3.2 million for the third quarter of fiscal 2009 compared to $1.8 million for the third quarter of fiscal 2008. The increase was primarily due to higher interest rates in 2009 related to the Company's February 23, amended credit facility.

The Company recognized income tax expense of $12.5 million in the third quarter of fiscal 2009. The amount of the third quarter 2009 tax expense was driven by the distribution of income and losses across legal entities and among taxing jurisdictions in which we operate, along with certain expenses related to the proposed merger which are non-deductible. This compared to the income tax expense of $0.8 million recognized in the third quarter of fiscal 2008, which exceeded pretax income due to the cumulative catch-up of taxes from the beginning of the year, declines in the value of certain non-deductible investments and the distribution of income and losses across legal entities and among various taxing jurisdictions.

Capital Investment

Capital expenditures for the third quarter of fiscal 2009 and year-to-date were $1.4 million and $ 8.0 million, respectively. This compares to $ 16.6 million and $57.4 million, respectively, for the corresponding 2008 periods. Capital expenditures for fiscal 2009 net of cash tenant allowances received are expected to be approximately $10 million, inclusive of the $8.0 million incurred to date. This is primarily composed of store signage changes of approximately $4 million, and new planned store openings as well as remodels.

Balance Sheet

At October 31, the Company had total current assets of $270.5 million, including $122.8 million in cash and cash equivalents, and total current liabilities of $113.7 million. Long term debt was $161.8 million, inclusive of $14.3 million in current maturities of long term debt. The Company's current ratio was 2.4 and the debt-to-equity ratio was .90.

Controlled Inventories

Total inventories at the end of the third quarter of fiscal 2009 were down 23.2 percent per square foot at cost, compared to total inventories at the end of the third quarter of fiscal 2008. In-store inventories for the third quarter of fiscal 2009 were down 24.4 percent per square foot at cost as compared to the third quarter of 2008.

Stores

Tween Brands ended the quarter with 905 stores. During the third quarter 2009, the Company opened 5 stores and closed 3 stores. Fourteen stores have been closed year-to-date.

Merger Update

On June 25, the Company announced that it had entered into a definitive agreement with Dress Barn, Inc. pursuant to which a subsidiary of Dress Barn will merge with the Company in a stock-for-stock transaction. The transaction continues on track with an anticipated completion in the fourth quarter of calendar year 2009. A Special Meeting for Tween Brands stockholders has been scheduled for 9am EST on November 25, to vote on the proposed merger agreement.

Tween Brands is a tween specialty retailer.

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